Suntec REIT - OCBC Investment 2019-04-25: Pre-emptive Placement For Future Acquisitions


Suntec REIT - Pre-emptive Placement For Future Acquisitions

  • Suntec REIT's 1Q19 DPU unchanged y-o-y.
  • UBS to move to 9 Penang Road.
  • Placement to raise S$200m.

1Q19 results within our expectations

  • Suntec REIT (SGX:T82U)’s 1Q19 results met our expectations. Gross revenue declined 1.1% y-o-y to S$89.7m, while NPI dipped 7.6% to S$58.2m due largely to the sinking fund contribution of S$4.8m for Suntec City Office upgrading works. This has no impact on Suntec REIT’s distributable income.
  • DPU was flat y-o-y at 2.434 S cents, and constituted 24.3% of our FY19 forecast. This includes S$6.5m of distribution from capital (~0.242 S cents per unit), which is similar to 1Q18.
  • Portfolio occupancy was 98.9% for Suntec REIT’s Office segment, and 97.4% for its Retail segment.
  • Average rent of S$9.37 psf/month was secured for Suntec City Office, and this was an encouraging q-o-q increase of 2.5% (third consecutive quarter of increase). On the retail front, operating metrics for Suntec City Mall were firm, with footfall increasing 3.3% y-o-y and tenants’ sales psf improving 1.3% y-o-y in 1Q19.

Office component of 9 Penang Road fully pre-leased

  • As a recap, Suntec REIT announced on 17 Apr that the office component of 9 Penang Road (9PR) has been fully pre-leased to UBS. Suntec REIT has a 30% interest in the property. UBS will occupy all the eight floors of office space at 9PR with a combined NLA of 381k sq ft.
  • Development works for the property is expected to complete in 4Q this year. Fit-out works will commence soon after TOP, with a target occupation by UBS in 2H20.

Private placement to raise gross proceeds of S$200m

  • Separately, Suntec REIT also completed a private placement exercise to raise gross proceeds of S$200m. 111.1m new units will be issued at a price of S$1.80, which comes in at the higher-end of its earlier indicative range of S$1.77-S$1.81. This represents a discount of 4.8% to Suntec REIT’s last closing price of S$1.89.
  • Approximately S$167.5m, or 83.8% of the gross proceeds, will be used to finance potential acquisition(s) in Australia. This is subjected to satisfactory due diligence and receipt of relevant regulatory approvals before any deal can be completed.
  • We factor in the enlarged unit base and 9 Penang Road development in our model, and this results in a drop in our FY19F and FY20F DPU forecasts by 2.4% and 2.9%, respectively.
  • As we also lower our risk free rate assumption to 2.3% (previously 2.7%), our fair value only inches down from S$1.84 to S$1.83.

Andy Wong Teck Ching CFA OCBC Investment Research | 2019-04-25
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.83 DOWN 1.840